Is long-term care insurance for you?
After my recent story about the cost of nursing homes, many readers wanted to know what I thought about buying long-term care insurance.
It's not an easy question to answer, but one thing's for sure: Everyone will have to confront how to pay for their care when they get old and frail.
Generally, Medicare doesn't pay for long-term care. Medicare only pays for skilled nursing facilities or home health care when your stay is medically necessary. And you must meet strict conditions for Medicare to pay for these types of care.
Before deciding whether to buy a long-term care insurance policy, look at your family's health history, your age, your health status, overall retirement goals, income and assets.
“Do you have a family tendency toward heart disease, cancer, stroke, diabetes, high blood pressure or dementia?” said Tom Murphy, a certified financial planner at Murphy & Sylvest LLC in Dallas.
If care is needed, do you have enough money to pay the additional expenses? If you're married, do you have enough to pay them while allowing your spouse to maintain his or her standard of living?
“Generally, for the poor or the folks on the lower end of the spectrum, (a long-term care policy) may not make sense because Medicaid provides coverage for nursing homes,” said Stephen Keller, manager of compensation and benefits at Grant Thornton LLP. “For wealthy folks — say, with $5 million or over of investable assets — they can self-fund this without any problem, but you do need liquid assets for that.”
It's consumers in the middle who may benefit from long-term care insurance, he said.
“In that middle band, which is a wide swath of the population, (insurance companies) can make a strong case that this makes sense,” Keller said.
Long-term care insurance isn't cheap, though.
A 55-year-old single individual purchasing long-term care insurance can expect to pay an average of $2,065 a year for $162,000 of current benefits, which will grow to roughly $330,000 of coverage at age 80, according to the American Association for Long-Term Care Insurance, up 20 percent from 2012.
“Persistent low interest rates and yields on fixed-income investments continue to push costs for various insurance products higher,” said Jesse Slome, the association's executive director.
“If the long-term care insurance premium itself is so high as to cause you to be unable to pay for food, medicine or other essential items, then you cannot afford the policy and should plan to qualify for Medicaid in the event of a long-term care need,” Murphy said. “If you can afford to pay the premium and still maintain your desired standard of living, then purchasing the policy is most likely a good idea.”
You age is a factor at the time of purchase.
“If you're over 60, it's going to be a lot more expensive and harder to qualify for a policy, particularly if there are any chronic conditions,” said Mandy Walker, a senior editor at Consumer Reports magazine.
Pamela Yip is a personal finance columnist for the Dallas Morning News. Readers may send her email at firstname.lastname@example.org; she cannot make individual replies.